Payroll Transformation in Europe, the Middle East, and Africa (EMEA)

How HR Changes are Driving EMEA Payroll Efficiency

There is no doubt that an emerging (and rapidly growing) trend within the HR and payroll software industry is globalization. However, as recent Jeitosa research noted (Going Global Report: HCM Trends in Globalization), a trend of caution in global business has also surfaced as the U.S. and European financial crises continues to stagnate. Yet despite observing a general slowing effect on the trend in recent years of increased globalizing of HR and payroll services, as Jeitosa cited, “…the highly local processes of benefits and payroll are also finding opportunities, and presumably advantages, in globalization”. In the Europe, Middle East, and Africa (EMEA) region that globalization of function and growing centralization of services would appear to be driven by the strategic goals of HR and payroll transformation—a process defined by ADP and the HR Outsourcing Association as, “any concerted effort to change and improve HR operations, whether through outsourcing, shared services, internal reengineering, or a combination of these strategies”

Indeed, ADP research found a marked increase in HR and payroll transformation activity in EMEA, with 87% of respondents engaged in a transformation project of some description; the primary driver being cost reduction and management. As to the precise direction of these transforming efforts, a report in the same year from Mercer found that, “in the wake of the recession HR is focusing its efforts on business and workforce alignment while continuing to enhance its own service delivery model through more efficient and effective processes”. Not surprisingly, such enhancements tend to be focused on increasing the strategic nature of the HR role. In fact, EMEA organizations asked to identify the top roles for HR highlighted that organizational change initiatives, strategic talent management, leadership development, and productivity-driven workforce planning were all spots where priority was being diverted. Of course the issue with this high- level focus is that it can only be realized in the current environment by reducing the administrative burden of core HR functions, including payroll. When this factor is combined with the finding that only 11% of respondents believed that in-house HR skills were strong in managing compensation and benefits (and 22% actually perceive those skills as weak), the conclusion of the Mercer report was that, at least in the EMEA, shared services and outsourcing will be key to achieving the desired strategic global payroll and HR model.

EMEA Payroll Shared Services

As the global recessionary economy drives efficiencies and headcount reductions, one clear option is to shift in-house support resources to a shared service model; either within countries or even centers that address the needs of employees in multiple countries across a region or territory. As Mercer found, “organizations are more likely to manage transactional processes, such as payroll and HR information systems (HRIS), in a shared services environment than they are strategic processes.” Unsurprisingly, Deloitte’s payroll operations survey found a similar trend in the use of payroll shared service centers in the EMEA region. Likewise, the above-mentioned ADP report found that 63% of EMEA respondents were likely to manage at least one HR process through a shared services model.

EMEA Payroll Outsourcing

Although ADP found that outsourcing was less popular as a primary transformation strategy with EMEA organizations than other approaches such as internal reengineering (31%) and shared services (29%), nevertheless the centralization and reliability benefits of payroll outsourcing are still attractive in the region with 84% of respondents stating that they were actively considering outsourcing payroll specifically. As has been echoed in other parts of the globe, payroll outsourcing has seen a resurgence of sorts as the pendulum has swung back into positive territory for this model.

EMEA Payroll Self-Service

The freeing up of resources and budget required to facilitate a strategic HR direction have encouraged the aggregation of payroll personnel and processes (shared services) and the appointment of third party payroll providers (outsourcing). The third route is the effective devolution of some payroll transactions to individual employees and managers via self-service functionality. For example, Mercer reported that 35% of respondents had engaged in employee self-service (ESS) technology initiatives in the preceding three years (with a figure of 28% for manager self-service). A Towers Watson survey fills out the EMEA picture, citing that “Changing personal data (57%) is the only ESS personal data tool currently in place at more than half of responding companies, but five more self-service tools are slated for implementation this year by 12% to 23% of respondents in this region”. The report goes on to highlight that “the MSS talent management tool most often in place in this region is reviewing and updating employee performance (60%), but double-digit growth in all MSS tools is expected this year.” Overall, Towers Watson found that self-service options had reached 48% across the board (rising to 72% if including those planning on implementing by the end of the year).

EMEA Payroll Transformation – The Bottom Line

The process of HR transformation during the last few years has acted as a driver in the Middle East and the wider regions of Europe and Africa for an ongoing effort of payroll change (along with other HR administrative functions). This endeavor is resulting in efficiencies, cost reductions and streamlined processes being leveraged from the deployment of shared service centers, outsourcing and increased self-service options for both employees and managers. Whether this trend will continue is up for debate, but, at least for now, the EMEA region appear to be poised to take advantage of these HR and payroll transformations—perhaps even impacting strategic efforts and directions worldwide.